WaterCredit Meets Indonesia
Landing in Jakarta, Indonesia on March 18, 2016, I couldn’t help but feel the excitement, intrigue, and gratitude that takes you over when you land in a completely new country and culture. Here you are, half way across the world in a place very different than where you came from. Here you are, with an opportunity to witness how diverse and incredible our world is. Traveling is both fascinating and humbling.
It has been nine years since I last worked in and visited Southeast Asia. This was my first trip to Indonesia. Despite the long journey, I was really eager to dive in and start this new adventure. The purpose of my trip was to visit Water.org’s WaterCredit programs in this country with two of our key strategic supporters: the IKEA Foundation and the Caterpillar Foundation.
When I joined Water.org in 2010, we had recently started to expand WaterCredit in India and Bangladesh, and pilot this market-based model in Kenya and Uganda. Water.org developed and launched WaterCredit in 2003. For those of you unfamiliar with WaterCredit, I’m including a link here to a webpage and blog post with more information. In summary, WaterCredit brings micro finance loans to some of the world’s poorest to enable them to meet their water and sanitation needs. What does this mean? A family earning as little as $1.25 a day and living in a disadvantaged community or an urban slum in India, Kenya, or Indonesia can gain access to a small, affordable loan to pay for the construction of a water connection and/or toilet at home.
To roll this out, Water.org has partnered with nearly 50 local, micro finance institutions (MFIs) worldwide – all of which have a strong social mission. These MFIs range from being local non-profits to small banks (in urban and rural areas). These MFIs provide small loans to families at the base of the economic pyramid (BOP) earning between $1.25 to $8.00 a day. WaterCredit loans have a 99 percent repayment rate, and tend to be repaid over a 12-24 months period. More than 92 percent of WaterCredit loan borrowers are women. The average WaterCredit loan size is US$206.
Our goal at Water.org is to build an ecosystem that can respond to the $12 billion demand among the BOP for WaterCredit. To explain, these are families who want and need access to capital to get safe drinking water or a toilet at home. To date, Water.org has reached more than 3 million people with WaterCredit. While Water.org and its local partners are excited about this progress, we’ve just barely scratched the surface of the demand for WaterCredit. There is still a long ways to go.
With WaterCredit, Water.org proposed a new dimension: “What if the world saw people living in poverty not merely as recipients of aid (charity) but as catalysts for change? What if the most disadvantaged were actually empowered to be the change-makers? It’s expensive to be poor. So expensive in fact that people who live below a country’s poverty line can end up paying 5-15 times more per liter of water, compared to people who live above the poverty line and have access to water at home. When given a choice and an opportunity to pay for water and sanitation improvements over a reasonable amount of time, families opt to finance long-term solutions versus struggle day to day to find that next liter of drinking water, use a pay-per-use community toilet, or risk the danger of open defecation.”
As of April 2016, Water.org has provided $13.1 million in philanthropic capital to its MFI partners to help them do market research and develop, jumpstart, and monitor their WaterCredit loan portfolios. In other words, we provide philanthropic subsidies to cover start up and monitoring costs. This has enabled our MFI partners to then attract $156 million in local commercial and social investment capital to provide more than 822,000 WaterCredit loans. This is $156 million we did “not” need to fundraise from philanthropic donors. And the excitement here is that as these loans get repaid, the capital is recycled and provided to another family in need. Over a 10-year period, WaterCredit can reach five times as many people as a traditional water program.
So what does this mean in terms of Indonesia?
Well, in 2010, when we first explored the possibility of expanding WaterCredit, we never imagined being able to launch this model in Southeast Asia. With more than 33 million people lacking access to safe water and 100 million without a toilet (along with a growing micro finance sector), Indonesia represented a very important place to start.
However, convincing financial institutions in Indonesia that providing affordable loans for water and sanitation to the world’s poor was an opportunity they should consider felt challenging and filled with obstacles. First, we knew that most MFIs had never done this before and would most likely not see this as a priority for their business. Hence, we had to really think through our value proposition. The micro finance sector in Indonesia is also very different to what we had experienced in India, and much more fragmented. Hence, we had to dig deep to find the right kind of partners with the greatest level of reach. This includes credit cooperatives, rural banks, foundations, and venture capital companies. And finally, we knew we had to work with these institutions to thoughtfully connect the dots between demand from existing and potential clients for this type of product, and how a loan could effectively help these families get access to safe drinking water and/or sanitation at home.
And so, with creativity, time, perseverance, experience, and a very entrepreneurial local team led by my colleagues John Moyer and Gusril Bahar Abdullah – we found a way to bring this vision to life. Some remarkable funding partners came on board to take this leap of faith with us, starting with the Caterpillar Foundation which approved an US$8.3 million grant in 2013 for Water.org to launch WaterCredit in Peru, the Philippines, and Indonesia. Today, the IKEA Foundation has approved a US$13.9 million grant to scale WaterCredit in India and Indonesia – and more importantly - help one million people get access to safe water and/or sanitation.
In 2014, we opened our first office in Jakarta and started building our portfolio of WaterCredit partners and programs. As I met with our team in Jakarta in March 2016, I thought about how far this team had come and how much I admired their dedication and commitment. To date, we have over six MFI partners in Indonesia that are providing WaterCredit loans, expanding their efforts, and have enabled more than 22,000 people to gain access to safe drinking water and/or sanitation. In particular, it was insightful to hear how some of these partners are already thinking out of the box to accelerate their WaterCredit lending efforts, given the high demand they are seeing among their clients for WaterCredit loans.
The picture I am including above is of a woman who really inspired me, and recently took out a WaterCredit loan to pay for the construction of a water connection and toilet in her home. As a result, she and her family no longer need to fetch water from a broken well and river close to her home, where villagers would also defecate at night. I'm including a picture of this broken well below. Now imagine that's the well where you get water for your children? Not a good idea. This woman now has a much more reliable water source, and piped connection right outside her home. She uses this water for multiple purposes including washing dishes and her house, showering, and drinking. To drink this water, this household currently boils their water. As a next step, Water.org is exploring with its MFI partner how to provide an affordable loan for this family to purchase a water filter.
To ensure this process does not leave families in debt, our MFI partners carefully check family income level, past debt history, and ability to repay loans. Water.org and these partners also verify that this approach is demand-driven versus supply-driven (e.g. handing out things for free that families don't want or won't use), and is complemented with hygiene education.
This woman no longer needs to worry about her children getting sick from contaminated water. She now has the time and health to focus on work, and taking care of her family. Every US$1 invested in water and sanitation provides a $4 economic return in terms of time saved and reduced health-related expenses. Every 90 seconds a child dies from a completely preventable water-related illness such as diarrhea. For those of you who have read through my other blog posts, you know I've mentioned this quite a bit. I wanted to reiterate this again given it's quite tragic that in 2016 children still die from diarrhea.
As we headed toward Semarang, Indonesia, we met with another WaterCredit client (picture below).
This woman also shared how having a new water well and toilet next to her home, after having taken out a WaterCredit loan, improved the quality of her and her family's life. As we listened to this woman share her story, I couldn’t help but think about her courage, determination, and will to change her family’s circumstances. Against all the odds, they persevered and they made this happen. This family earns between $2-$5 a day. With some support from our MFI partner, this woman was able to take out an affordable loan and ensure her family’s basic needs were met. With a toilet at home, they no longer needed to get up in the middle of the night to go find a place to defecate in the dark.
It’s so devastating that in our time there are still 2.4 billion people globally without a toilet. Can you imagine the humiliation of having to go to the bathroom in the open, with other people watching? Imagine that loss of dignity when you have no privacy, and you're a woman menstruating with no access to sanitary napkins or a toilet?
As we visited additional rural communities in Semarang, we met with local community-based organizations (CBOs) – our newest type of WaterCredit partner. There are about 14,000 CBOs in Indonesia that have been mandated by the Government of Indonesia to operate as utilities in rural communities and expand access to safe water. However, to expand their infrastructure and services at a level that is needed to reach all the households without access to safe water at home, CBOs need access to more capital.
Yet, these organizations often lack experience demonstrating financial readiness and potential profitability to investors. Hence, through its WaterCredit programs, Water.org is helping these CBOs strengthen their ability to mobilize local investment capital and as a result, expand their services to families in need. This includes bringing CBOs together and providing them with training modules during a group training events, and helping these CBOs complete legal registration, build a business and investment plan, and produce financial statements. Water.org, in collaboration with key local actors including the Government of Indonesia, is helping introduce these CBOs to local banks, investors, and MFIs.
We met with one of our new, local CBO partners in Maggar Wetan which is already expanding its services among families in need. I’m including below a picture of the community members and children we met, along with one woman who now has a water connection in her home thanks to this CBO’s efforts in her community. This CBO took out a WaterCredit loan to expand its services in this community.
While there is still much to learn from the expansion and refinement of WaterCredit, it is truly encouraging to see how far this model has come in terms of empowering more than 3 million people with a basic and fundamental human need: safe drinking water and sanitation.
As I left Indonesia, I thought about the beautiful and inspiring people we met who so graciously invited us into their homes to tell us their stories and how WaterCredit had impacted them, and about the hope and possibility that we could be the generation that puts this crisis behind us. How fantastic would that be - a world where everyone has access to safe drinking water and sanitation. A world where everyone has the chance to thrive.